Niti Aayog vice chairman also says that other than NPAs, the economy is in excellent shape and clarifies that the three-year Action Agenda does not recommend tax on farmers' income.Yogima Seth Sharma&Deepshikha Sikarwar | ET Bureau | May 02, 2017, 07:09 IST

NITI Aayog’s draft three-year action plan is just a glimpse of the government’s long-term vision for turning around the country’s economy, Arvind Panagariya, vice chairman of the Aayog, says. A bigger and more comprehensive document would follow in the form of 15-year vision and seven-year strategy, which will deal with sensitive issues like defence, internal security and may be even privatisation of banks, he told ET in an interview. Edited excerpts:

How has the formulation of the action plan been different from the Five Year Plans?Rather than compare, let me explain how we have gone about formulating the Action Plan. We began in May 2016 with consultation on a very wide scale --journalists, economists, industry chambers, voluntary organisations and experts in virtually all individual areas. NITI Aayog teams headed by advisers visited nearly all states to consult. Prior to that I wrote to CMs and the CEO wrote to chief secretaries. We also consulted with central ministries. We also sought and got written inputs from many experts. Work on the Vision, Strategy and Action Agenda proceeded in parallel in each area. Under the direction of members, the advisers prepared documents in each area using various inputs. Eventually, these documents came to me and, assisted by a team of six talented policy analysts, I converted them into a unified final document. Initially, we had planned to bring out the Vision and Strategy document first but since we were getting close to the ending date of the 12th Five Year Plan, around February 2017, we decided to fast track the Action Agenda, which is of immediate policy relevance. Work on the Vision and Strategy document is also in advanced stage, however.

What are your views on taxing the farmers, something which has led to huge controversy?As I have explained in several recent interviews, the Action Agenda does not recommend such a tax. Any such talk is in near direct contradiction of the Prime Minister’s push for doubling the farmers’ income. Moreover, by taxing farmers, we would be undermining the objective of food security.

The chief economic adviser has made this point that states can go ahead with imposing tax on farm income. What do you have to say? Will NITI pursue this with states?What the CEA is saying is that the tax on agricultural income is a state subject. The finance minister has also made this point. But since such a tax is not a part of our Action Agenda, there is no question of us pursuing it with states. In our Action Agenda, there is a lot that states need to do and we will pursue those action points.

When does the implementation of the action plan begin?I have already written to the states and sought their final comments. After we receive these comments, we will do the necessary revisions and move ahead. However, in the end, the Prime Minister and the PMO will need to do a final review and give us a green signal. But remember that the formal approval of the action agenda is not a prerequisite for implementation. Some of the things mentioned in the Action Agenda are already part of the government policy and work on them is under way.

What is your assessment of the economic situation?Other than NPA, which need to be addressed, my assessment is that the economy is in excellent shape. Of course, we need to continue doing many things to accelerate the growth and development process. Externally the view is that this government wants to do things and want to resolve problems. The government has also generally been swift at making corrections whenever a mistake is made. Overall, we are very well-placed. So, I now hope to see, for instance, our savings rate turning around a bit. We are growing at 7% plus and we say in the action agenda that within next two-three year or may be sooner we would touch the 8% mark.

What are your views on addressing the rising problem of NPAs of the banks?First, more resources are needed to recapitalise the banks. And second, as we suggest in our Action Agenda, we need to move the NPAs out of the banks. Earlier, I had suggested internally that we could create a government-led asset reconstruction company (ARC) or what is sometimes called a “bad bank,” and move the assets to this institution. But I have come to realise that building such an institution in the government takes time. So this route would mean substantial delay in action, which we must avoid. We suggest in the Action Agenda that the same objective can be achieved through the existing private ARCs and a strengthened State Bank-led ARC. For each major asset, an ARC could be given a 20% stake with 80% stake remaining with the creditor banks.

This will give the ARC enough skin in the game to seriously try to resolve the asset at maximum possible value. For banks, they still have the 80% stake so they cannot be accused of having sold the assets at a throw away price. Any upside upon resolution will largely come back to the banks. That seems to me to be a plan which is practical, which smoothens out the process for banks worried about allegations that they gave away their asset for a throw away price and it gives enough stake to the ARC to resolve the asset to maximise its value.

Is there also a view in NITI on privatising banks?We haven’t done that in the action plan. One obvious hindrance is that the legislation will have to be changed in the absence of which banks cannot lower their stake below 50%. That’s the issue we may visit in the Vision document since it has a 15-year horizon.

How does strengthening rupee impact India’s export competitiveness?Astronger rupee would mean lower price for exports as a result of which export incentive is reduced. But the exchange rate policy is based on multiple considerations and usually it is something that the RBI must decide.

PM made a mention of changing the financial year to calendar year. Where are we on this? Does it bring in any tangible benefits?No decision has been made in this regard so far. There was a committee appointed on this issue and it has submitted its report. The PM is very keen to get states’ view on this subject, which is the reason he raised it in the NITI Aayog meeting.Going to a calendar year better aligns the financial year to the monsoon. It gives better sense as to how financial resource should be allocated, and what assistance is required based on the performance of the monsoon. While this is the main argument the side argument is that the data collection can be aligned to the calendar year. In our country financial year and data collection are aligned which poses a little bit of difficulty for comparison with other countries, which often present their data according to the calendar year.

Concerns have been expressed in various quarters of not creating enough jobs. What does the action plan propose in order to address it?We have a dedicated chapter on industry and services that focusses on job creation. Unemployment in India is lesser of a problem because unemployment rate is usually estimated in the 2-3% range. Our problem is underemployment. People often have jobs but they exhibit low productivity and therefore pay low wages. We need more formal, organised sector jobs that would pay good wage. We offer several general as well as industry-specific recommendations to help boost growth of formal-sector jobs. As part of the general reforms for all sectors, we recommend coastal employment zones, labour market reforms, infrastructure, trade facilitation and trade agreements. Then we take up some specific sectors, particularly the ones where India has the potential to do well. We have suggested reforms in clothing where China has $175 billion worth of exports while ours is $17 billion. Even Bangladesh and Vietnam do better than us in exports of this product. In leather and footwear, again China exports about $55 billion and we do just $3-4 billion. Then we go to electronic and electrical goods China exports about $800 billion while we export less than $10 billion. In clothing, leather and footwear, electronic products, gems and jewellery, tourism, real estate and finance where good jobs can be created we suggest sector specific measures.

Government started on a positive note on labour reforms but now it seems that the momentum is lost. What is the action plan going forward?Some work has been done on codifying labour laws and reducing 44 legislations into four codes. However, in terms of progress on legislative action, it is still an issue whether it will pass the muster in Rajya Sabha or not. Personally, I think we can get this done through the states. Some states like Gujarat, in its SEZs and NMIZs, have amended the Industrial Dispute Act such that any firm regardless of any number of workers can retrench by giving 60 days of salary for each year worked. Central government has given permission for this. Rajasthan, MP and Andhra Pradesh have also reformed the Industrial Disputes Act. So the reform route through the states is open to us and the NITI Aayog encourages states to make use of it.

What has been the progress on coastal employment zones which have been in work at NITI for quite some times?There is a committee under the CEO, Niti Aayog driving the process. We are getting the DPRs done currently for them. Gujarat and Andhra Pradesh are keen on these zones. Such zones can serve to bring the exiting large and export-oriented firms from China to India. Since large firms have to necessarily operate in the export market, they have to be globally competitive as a result of which they exhibit high productivity. Then they also define the domestic standards and create in ecosystem in which the MSMEs also become efficient and pay better wages to their employees.